Case Update – Holiday pay
In a recent, long-awaited Judgment, the Supreme Court has held that employees can now claim for historic underpayments of holiday pay, even if there are gaps of more than three months between deductions. This is a significant ruling which extends the breadth of unlawful deduction of wages claims that employees can bring relating to holiday pay arrears. Here, Rosie Cowling explores the case in more detail:
In this case, the Claimants brought claims for underpayments of holiday pay, having historically received basic pay only during periods of annual leave. The parties had accepted that there had been an underpayment of holiday pay, as the holiday pay calculation should have included payments relating to compulsory overtime. What was in dispute, however, was how far back the Claimants were entitled to claim. The relevant Northern Irish legislation, consistent with the Employment Rights Act 1996, stated that a claim could be brought where the underpayment or relevant deduction complained of, had been made in the three-month period prior to the claim being brought, unless the deduction was part of a series, in which case the claim had to be brought within three months of the last act in the series of deductions.
Previous case law held that deductions could only be linked and form a series for these purposes, if there was a gap of three months or less between each deduction. However, in this case, the Supreme Court held that an employee can look back further and claim for a series of deductions even if the gaps between payments/deductions was longer than 3 months.
When considering whether a claim arising out of a series of deductions should succeed, a Tribunal should assess all relevant circumstances of the deductions, including:
- Their frequency
- Their size and impact
- How they came to be made and applied
- What links them together
- Any other relevant circumstances
Undoubtedly, this latest judgment has a substantial impact on the potential exposure for employers in relation to back-dated holiday pay claims. However, its impact is (for now) tempered by the two-year limit on claims for unlawful deduction from wages under section 23 Employment Rights Act 1996 (introduced with effect from January 2015). We shall have to wait to see whether this time limit will also be liable to change too.
To read the full case report: https://www.supremecourt.uk/cases/docs/uksc-2019-0204-judgment.pdf